Which type of corporation has the best asset protection value? There are two types of corporations, C corporations and S corporations. The S corporations are usually used by the “little guys,” and the C corporations are always used by the “big guys.” It you are selling stock to a significant number of shareholders, you have to use a C corporation. S corporations are restricted to no more than 100 shareholders who are basically warm blooded American citizens.

The asset protection value of a C and an S corporation is identical, because the corporate documents are identical. The requirements for maintenance of the corporations are basically identical. The only difference in the corporations is the election filed with the IRS to have the corporation taxed under Chapter 1, subchapter S or subchapter C, of the IRS Code.

The asset protections of both corporate structures should be identical. There is a perception that C corporations give better asset protection. That is because they are the big boys, and they pay the big bucks to have the attorneys do all of the maintenance to keep the corporate formalities up to snuff. The corporate veil holds when it is challenged. The little guys ignore the corporate formalities, and they lose the corporate shield 95% of the time when it is challenged in court. In the Business Planning portion of the Accumulation and Preservation of Wealth, I hit the corporate formalities hard and teach you how to do them yourself, because unless you’re one of the big boys, you can’t afford to have the attorneys do it for you. You have to do it yourself.

The tax aspects of the corporations are very different. But, that is an accounting question, not a legal question. Get your account involved in that decision. Having said that, unless you are going to have lots of shareholders, your accountant or attorney had better have some really good reasons to recommend a C corporation to you. There aren’t a lot of really good reasons, so be careful. Study up on what your options are using the Business Planning Accumulation and Preservation of Wealth system.